SPSM: Time To Buy Small Caps

seekingalpha11-25

I recommend buying SPDR® Portfolio S&P 600™ Small Cap ETF due to the expected positive impact of Trump's tax cuts on small-cap companies.Historical data shows stocks typically rise from November to ...

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A recent survey showed that, since 1928, US stocks have tended to perform very well from November until the president's inauguration.   Stocks usually rally as Inauguration Day approaches  This is a great indicator that an investor should have exposure to stocks. However, we also know that the US market is trading at extremely high multiples, which demands strategic stock picking. Who Will Benefit From Trump's Policies?Valuation Looks Interesting Above, we saw through the graph that the companies that are part of the Russell 2000  should benefit from Trump's measures, but bringing it into the context of the SPSM ETF, we can check the infographic below.   P/E  As we can see, the S&P SmallCap 600 is one","collect":0,"end_time":0,"defaultTopTitle":"seekingalpha.com","property":[],"viewcount":null,"language":"en","relate_stocks":{"BK4588":"碎股","BK4585":"ETF&股票定投概念","SPSM":"SPDR Portfolio S&P 600 Small Cap ETF"},"translate_title":"SPSM：是时候购买小盘股了","themeId":null,"isJumpTheme":false,"ttsUrl":null,"symbols_score_info":{"SPSM":0.9},"content_text":"I recommend buying SPDR® Portfolio S&P 600™ Small Cap ETF due to the expected positive impact of Trump's tax cuts on small-cap companies.Historical data shows stocks typically rise from November to the presidential inauguration, supporting stock exposure despite high market valuations.Small-cap companies are likely to benefit most from Trump's policies and currently trade at a discount to their 10-year average P/E.   Ivan Rodriguez Alba/E+ via Getty Images  Investment Thesis I recommend buying SPDR® Portfolio S&P 600™ Small Cap ETF (NYSEARCA:SPSM). In election years, stocks usually rise until the day the president takes office, but in an expensive market, pragmatism is needed to choose good investment options. Initially, Trump's policies will focus on tax cuts for companies. In this scenario, among several asset classes, small caps are the most benefited and have the most attractive valuation among the classes. SPDR® Portfolio S&P 600™ Small Cap ETF  The SPDR® Portfolio S&P 600™ Small Cap ETF seeks to replicate the performance of the S&P SmallCap 600 index. In this sense, it allows investors to gain exposure to American small-cap companies.   Holdings (SSGA) The ETF holds over $12 billion in assets, with a management fee of 0.03%. It is highly diversified and has over 600 invested companies. After this introduction, let's get to the thesis. How Does The Market Perform Up Until The Inauguration? We are approaching the inauguration of Donald Trump as US President. A recent survey showed that, since 1928, US stocks have tended to perform very well from November until the president's inauguration.   Stocks usually rally as Inauguration Day approaches (GS) This is a great indicator that an investor should have exposure to stocks. However, we also know that the US market is trading at extremely high multiples, which demands strategic stock picking. Who Will Benefit From Trump's Policies?  By far, the tax cut policies are the most promising. In this sense, Trump is expected to make the TCJA permanent, and there is an expectation that tax rates will be cut from 21% to 20%, and in some cases, 15%. In general, tax cuts tend to increase companies' profit margins. However, we have seen that the market demands a more strategic analysis, and in this sense, below we have the indexes that should be most positively impacted.   Sensitivity of EPS to a 1 pp change in tax rate (Factset, GS) As we can see above, the class that should benefit the most are the assets of the Russell 2000. It is worth remembering that this index represents American small-cap companies, that is, Trump's policies tend to benefit Small Caps, but what is the valuation of these companies? Valuation Looks Interesting Above, we saw through the graph that the companies that are part of the Russell 2000 (small caps) should benefit from Trump's measures, but bringing it into the context of the SPSM ETF, we can check the infographic below.   P/E (Factset) As we can see, the S&P SmallCap 600 is one of the few that has a discount to its 10-year average P/E, and this supports my buy recommendation. Additionally, Seeking Alpha's Quant tools also indicate a buy.   Quant Rating and Factor Grades (Seeking Alpha) Potential Threats To The Bullish Thesis A relevant risk to the thesis is quite fundamental. Small-cap companies tend to be more volatile for several reasons: greater sensitivity to the macro scenario, high growth expectations, lower market coverage. Another relevant risk is that 41% of small caps are currently unprofitable. This number is similar to major crises such as the tech bubble, the 2008 financial crisis, and COVID-19. Let's see below.   Percent of unprofitable companies (Factset. Bloomberg, JP Morgan) Investing in companies that are not profitable is even more risky and is not recommended for extremely conservative investors. The thesis is complex, and investors should be cautious in their analysis. The Bottom Line Statistical evidence suggests that the period between November and the presidential inauguration is characterized by a rise in stock prices. But in a market as expensive as we are seeing, it is important to be pragmatic. Studies indicate that Trump's tax cuts are likely to have the greatest impact on small-cap companies. Additionally, this asset class is one of the few ones that still has a discount to the average P/E of the last 10 years.  Based on this analysis, I recommend buying the SPDR® Portfolio S&P 600™ Small Cap ETF. In my view, there is a great investment opportunity in small caps, and a diversified ETF like SPSM could be a good way to invest.","kind":"highlight","is_publish_news":true,"is_publish_highlight":false,"is_publish_live":false,"is_publish_wemedia":null,"editions":null,"column":"","sentiment":"1","news_tag":"analysis","news_rank":0,"symbols":[],"gpt_button":0},"commentList":[],"isCommentEnd":true,"newsSizeData":{"likeSize":0,"commentSize":0,"repostSize":0,"favoriteSize":0,"likeStatus":false,"favoriteStatus":false},"APP":{"userAgent":"Mozilla/5.0 AppleWebKit/537.36 (KHTML, like Gecko; compatible; ClaudeBot/1.0; +claudebot@anthropic.com)","isDev":false,"isTTM":true,"deviceId":"web-server-community-laohu8-v3","version":"4.29.4","shortVersion":"4.29.4","platform":"web","vendor":"web","appName":"ttm","isIOS":false,"isAndroid":false,"isTiger":false,"isTHS":false,"isWeiXin":false,"isWeiXinMini":false,"isWeiBo":false,"isQQ":false,"isBaiduSwan":false,"isBaiduBox":false,"isDingTalk":false,"isToutiao":false,"isOnePlus":false,"isHuaWei":false,"isXiaomi":false,"isXiaomiWebView":false,"isOppo":false,"isVivo":false,"isSamsung":false,"isMobile":false},"href":"/m/news/2486146967"}